People often talk about the growing interest in property around the world—now there are numbers to back it up. According to a new report from RREEF, the real estate and infrastructure investment arm of Deutsche Bank, the global real estate market is poised to hit the $14-trillion mark in the next five years.
According to the authors of the report, who looked at factors like appreciation, net additions to investable real estate and sale/leasebacks, the global real estate market is set to grow by 40 percent over the next five years, jumping from $9.8 trillion in 2006 to an estimated $13.7 trillion in 2011.
One of the more surprising finds in the report is that growth is predicted to be rather even across the main geographic regions. The US market is expected to grow by $1.5 trillion over the next five years, fueled largely by an appreciation of real estate assets. The European market is pegged to see only $1.1 trillion in growth thanks to a possible slowdown, but the net growth could be driven by strong property appreciation and increased development in 2009 and 2010. The size of the Asia-Pacific market is expected to double in the next five years, growing by $1.3 trillion; this will be driven by strong property appreciation and around $460 billion in new development, the report says.
For all the breath (and ink) spent discussing the BRIC countries and emerging markets of the world, they are collectively expected to experience growth of well over 100 percent in the next half-decade—though their overall scale will remain relatively small. By 2011, emerging markets are likely to have grown by $1.7 billion, representing 13 percent of the global total. (For comparison, North America and Western Europe will probably represent somewhere around 70 percent.)
Hand-in-hand with the global property markets, the global private equity real estate industry is expanding as well. On the one hand, LPs are clamoring to hit their real estate allocations; on the other, many fund sponsors are looking at new geographies (Southeast Asia, Latin America) or looking into new niche plays (student housing, senior living) to bolster returns and differentiate themselves from everyone else.
Less encouragingly, the report also says that overall investment performance in property will be leveling off. “With rental growth moving towards a cyclical peak and with less scope for further cap rate compression, the performance of the real estate markets is set to fall off over the coming five years,” the report said. “Certain markets are likely to experience significant cyclical downturns as investors realize that current levels of pricing are unsustainable given the surge of new supply and the prospect of weaker, or even negative, rental growth.”
If Deutsche Bank has it right and the value of property markets of the US, Asia and Europe will each gain more than $1 trillion in the next five years, there should be no dearth of investment opportunities. Good returns on the other hand could by another matter entirely.